exv10w3






Exhibit 10.3




Eagle Rock Energy G&P, LLC

2010 Short Term Incentive Bonus Plan




Objective



The objective of the 2010 Short Term Incentive Bonus Plan (the “Plan”) is to encourage the
employees of Eagle Rock Energy G&P, LLC (the “Company”) to conduct activities that result in the
achievement of the Company’s financial objectives. The Company serves as the general partner of the
general partner of Eagle Rock Energy Partners, L.P. (the “Partnership”) and receives reimbursement
from the Partnership for its expenses, including payments under this Plan. References in the Plan
to “Enterprise” mean the Company, the Partnership and all of its subsidiaries.




Participants



Regular full-time employees who were 1) employed during 2010; 2) hired prior to October 1, 2010;
and 3) who are active full-time employees at the time of bonus payment are “Participants” in the
Plan; provided, however, that the Company may cause an employee who began employment after
September 30, 2010 to be included as a Participant, but only if such treatment is expressly set
forth in a written offer letter from the Company at the time of employment. If bonus payments are
made under the Plan, they are expected to be paid in March 2011. Any bonus payment made under the
plan will be prorated for the amount of time a Participant was employed with the Company during
2010; unless provided otherwise in any offer letter or employment agreement between the Company and
such employee.




Plan Provisions





	 	•	 	The Plan will be administered by the Compensation Committee of the Board of
Directors of the Company (the “Committee”), based on funding approval by the Board of
Directors of the Company (the “BOD”), and subject to performance recommendations made
by the Chief Executive Officer (“CEO”) and members of senior management (“Senior
Management) as described in further detail in this Plan, as follows:






	 	•	 	The BOD must first determine the Partnership’s 2010
financial results and approve a Funding Percentage, and the BOD has full
discretion to fully or partially fund the Plan, or to deny funding;




 









 






	 	•	 	The Committee has complete discretion in
administering the Plan and approving individual bonus payments under the
Plan after the BOD has approved a Funding Percentage.






	 	•	 	Each Participant will be assigned and notified of their Target Bonus Percentage (as
defined below) in writing during the First Quarter of 2010 or, if starting with the
Company after such notification event, in a written offer letter at the time of
initial employment. The Target Bonus Percentage is a percentage of the Participant’s
Annual Base Compensation (as defined below), and represents the target bonus
opportunity based on achievement of the Enterprise Goals and the results of individual
performance review appraisals performed at the end of 2010 and/or early 2011.
Participants who have performed at an exceptional level and whose accomplishments are
recognized by the Committee or Senior Management could earn up to 125% of their Target
Bonus Percentage. The Company shall accrue at 100% of the Target Bonus Percentages
for all Participants eligible to participate in the Plan, unless the Committee directs
management to accrue at a lower percentage, and the total bonus payouts for the
Company cannot exceed the total accrued amounts for the pool of participants, unless
an exception is made by the BOD.






	 	•	 	Participants are not guaranteed to receive a bonus payment.





Bonus Payments



Each Participant’s bonus payment will be calculated according to the following formula:



Bonus = Annual Base Compensation





	 	*	 	Bonus Target Percentage
	 
	 	*	 	Funding Percentage
	 
	 	*	 	Individual Performance Factor
	 
	 	*	 	Proration Factor




where,




	 	 	 
	Annual Base Compensation =

	 	regular base salary, or regular hourly rate * 2080.
	 
	 	 
	Bonus Target Percentage =

	 	% assigned by the Committee for Senior Management and by Senior Management for all other
Participants, based on Participant’s position level in relation to other positions in the
Company (e.g., requirements relative to the skills and knowledge required to perform the
essential job functions, overall level of responsibility, decision






 









 






	 	 	 
	 

	 	making authority, and impact to the Company’s overall operations and financial performance).
	 
	 	 
	Funding Percentage =

	 	% determined by, and at the complete discretion of, the BOD and is expressly dependent on
achievement of Enterprise financial, operational and safety goals (see “Enterprise Goals”
below).
	 
	 	 
	Individual Performance Factor =

	 	value from 0 to 125% depending on individual performance rating relative to Participant’s
Performance Appraisal Rating (see Table 1).
	 
	 	 
	Proration Factor =

	 	value from 0 to 1.0 depending on amount of service in plan year.






 









 






2010 Enterprise Goals




Financial Goals:




	 	 	 
	•   Adjusted EBITDA

	 	$[****]
	 
	 	 
	•   Maintenance CAPEX

	 	Not to exceed $25,500,000 (excluding
acquisitions or major organic growth
projects)
	 
	 	 
	•   Growth CAPEX

	 	Target: $14,500,000 (excluding
acquisitions)
	 
	 	 
	 

	 	Upstream development Unit costs not
to exceed $1.01 / MCFE
	 
	 	 
	 

	 	Target IRR hurdles for all capital
projects will be at (or greater
than):
	 
	 	 
	 

	 	•   18% IRR for Midstream Projects; and

	 
	 	 
	 

	 	•   25% IRR for Upstream Projects

	 
	 	 
	•   Operating Expenses

	 	Upstream: Not to exceed
$22,100,000 (excludes TOTI) Unit
OPEX not to exceed $[*****] / MCFE
	 
	 	 
	 

	 	Midstream: Not to exceed
$55,000,000 (excludes TOTI)
Unit OPEX not to exceed $[*****] /MCFE
of throughput






 









 






Environmental and Safety Goals:




	 	 	 
	•   Recordable
Incident Rate

	 	Not to exceed 1.50
	 
	 	 
	•   Preventable Vehicle Incidents

	 	Not to exceed 5
	 
	 	 
	•   Implementation
of a contractor safety
management program
designed to drive
contractor safety
performance at Eagle
Rock’s work sites
	 	 
	 
	 	 
	•   Environmental
and Regulatory
Compliance:

	 	Implementation of the OpsInfo EMIS
System
	 
	 	 
	 

	 	Implementation of an internal audit
program of EH&S policies,
procedures, and training across both
operating segments
	 
	 	 
	•   NRC Recordable Spills

	 	No major spills






Governance Goals:




	 	 	 
	•   Sarbanes Oxley Compliance

	 	No material weaknesses in Sarbanes
Oxley Section 404 Attestation Audit
of Internal Controls








 




			
	[*****]	 	Indicates redacted terms for which confidential treatment has been requested from the
Securities and Exchange Commission.




 









 










Individual Goals and Performance Appraisal Rating





	 	•	 	Each Participant will document a set of measurable 2010 goals by the later of
February 1, 2010 or one month of their employment start date. These goals should
support the achievement of the 2010 Enterprise Goals and must be approved by
Participant’s immediate supervisor. Senior Management’s goals must also be approved
by the Committee.
	 
	 	•	 	The achievement of these goals will be a key factor in determining a Participant’s
Performance Appraisal Rating.
	 
	 	•	 	The Committee will determine the Performance Appraisal Rating for the Chief
Executive Officer and approve the Performance Appraisal Ratings of Senior Management,
with recommendations of the Chief Executive Officer, and Senior Management will
determine the Performance Appraisal Ratings for all other Participants, with
recommendations made by the immediate supervisor and all other supervisors in between
such supervisor and Senior Management.





Individual Performance Factor





	 	•	 	The Committee, with respect to Senior Management, and Senior Management, with
respect to all other Participants, will consider the Performance Appraisal Rating and,
in their discretion, further evaluate the Participant’s performance by assigning an
Individual Performance Factor within the appropriate range (Table 1) which indicates
the eligible percentage to receive up to 125% of their bonus target percentage for
exceptional contributions.




 









 











Table 1

Individual Performance Factors




	 	 	 	 	 
	Performance Appraisal Rating	 	Individual Performance Factor
	 
	 	 	 	 
	1 — Exceptional
	 	 	91 — 125	%
	2 — Strong
	 	 	81 — 90	%
	3 — Fully Met Expectations
	 	 	51 — 80	%
	4 — Acceptable, but improvement is needed
	 	 	25 — 50	%
	5 — Performance Requires Improvement
	 	 	0	%






 









 






Example Bonus Calculation



Assume the Company achieves most, but not all, of its 2010 Enterprise Goals. The BOD reviews the
performance of the company and determines that a Funding Percentage of 90% is appropriate.
Participant A is an operator who was rated “Exceptional” by his supervisor, based on his
achievement of his individual goals. Management determines that Participant A should receive an
Individual Performance Factor of 91% based on the Performance Appraisal Rating. Participant A
makes $25/hr and was hired on April 1, 2010.



In this example,




	 	 	 	 	 
	Annual Base Compensation =

	 	$25/hr * 2080 hours = $52,000

	 
	 	 	 	 
	Bonus Target Percentage =

	 	6%	 	
	 
	 	 	 	 
	Funding Percentage =

	 	90% (determined by the BOD’s assessment of
achievement of 2010 Enterprise Goals)

	 
	 	 	 	 
	Individual Performance Factor =

	 	91% (based on Performance Appraisal Rating
and Senior Management discretion)

	 
	 	 	 	 
	Proration factor =

	 	75% (Participant A worked 9 months during
2010)






So,



Bonus payment = $52,000 * 0.06 * 0.90 * 0.91 * 0.75 = $1,916.46




APPROVED AND ADOPTED DECEMBER 30, 2009 

BY THE BOARD OF DIRECTORS